The fast emerging infrastructure investment trusts (InvITs) may give a fillip to cash-starved infra space by infusing capital to the tune of Rs 20,000 crore over the next 18 months, says a report by domestic rating agency Icra.
“Lead by roads, renewables and transmission sectors there is a potential for InvIT issuances worth Rs 20,000 crore capital in debt and equity over the next 12-18 months. We expect the first such issuance to take place in the next three to six months, once the concept finds gains developers’ and investors’ confidence in the instrument,” Icra senior vice-president Rohit Inamdar said.
InvITs not only enable developers to recycle equity in large commissioned projects by selling them to long-term institutional investors like pension funds, insurers, MFs and retail investors, but also provide investors with steady and stable returns together with some inflation hedge.
“InvITs will be a sound alternate option for developers to release capital from their completed projects.
Currently, majority of credit to the infra sector is from banks, and infrastructure finance companies with an estimated credit of Rs 16 trillion. Apart from this, equity capital in infra projects is estimated to be Rs 6-8 trillion,” he said.
It can be noted that to ensure that InvITs are not over-leveraged, Sebi has restricted the borrowing under InvIT structure under which the aggregate consolidated net debt of InvITs shall not exceed 49 per cent of the value of the InvIT assets. Also, if the consolidated net debt exceeds 25 per cent of the value of InvIT assets, for any further borrowing credit rating is required.
On the utility of credit rating for InvITs, Inamdar said credit rating of InvITs should not be construed as a comment on the credit worthiness of the individual SPVs owned by InvIT or on the expected returns to unit holders.
He also said if the new assets have weaker credit profile than the InvIT portfolio, it could result in increased borrowing levels with no commensurate increase in cash flows leading to deterioration in the overall credit profile of the InvIT structure.
Infra investment trusts or commonly known as InvITs are collective investment vehicles which make investments in infra projects either directly or through SPVs.
Though many players have shown intent of using InvIT as of now only three InvITs (IRB InvIT Fund, GMR Infra Investment Trust, MEP Infra Investment Trust) are functional now, while a few other companies have either applied or are evaluating this route for fund raising.
Under the InvIT structure, external debt can be raised under either SPVs or at InvIT level or both. InvITs can also extend debt to SPVs.
Like this report? Sign up for our daily newsletter to get our top reports.